Brian Moynihan: People Who Think We're In Trouble - I'll See You In Court If That's What It Takes

Brian Moynihan just spent 90 minutes on a
conference call with Fairholme Capital and Bruce Berkowitz willingly submitting
himself to a grilling by those skeptical that the bank can bounce
back from failed attempts to settle mortgage set-backs,
regulatory issues, and perceived dwindling capital.

Below is our coverage. Interesting points are bolded.

So far, Bank of America's share price is down since his big
conference call started.

1:03 The call is beginning. A transcript will be on Fairholme's
website later, the operator says.

1:05 Brian Moynihan and the CFO are on the call. "We
set this call up a month ago...

1- Our core franchise continues to perform in the market. BAC's
core businesses are the strongest across the sector, he
says

1:15: Core expenses have been running about flat. last
month they started an effort to take out costs internally and
costs will be cut materially and substantially. He says
he'll have more info on the 3rd quarter earnings call

Mortgage risk: th're trying to take it off the table; reminds us
he's built $18 bil in reserves

We're eliminating delinquent customers - AKA
foreclosing on them

1:23: CFO is on now

They have some mortgages on their balance sheet that are deducted
from Basel capital requirements, and they're trying to eliminate
them

1:26 BM is back on now. We have enough capital, he insists

1:27 Bruce is talking - talking about capital requirements under
Basel III - min tier 1 standard is 3.5%; That will grow to 9.5%
by 2019

"we expect our ratios to be inexcess of all required minimums"

1:29 $150 billion risk-weighted assets that they have to and will
get rid of

1:30 Moynihan is bullish on BAC's prospects and will now take
questions

over 6,000 listeners are on the call

1:31 Q: "How can you trust the current reserves?" BM A: "We
adjust our estimates, we look at them..." CFO: We reflect our
reserves... We got a settlement done on the monolines... " BM:
we have gotten tons of criticism in our industry over the
past 4 years and so we're very careful now CFO: "Right."

1:37 Q: "How do owners get comfortable with the idea that there's
no big hole left in the balance sheet?"

BM A: "We've gotten through them. Think about what we've been
doing over the past 3 quarters. If you think about the mortgage
putback risk, we've been working on it. There will be debate
until we get the final decision from the judge in some of the
cases, of course that doesn't mean that people might not
intervene, which they have done in the past, but the period of
time for them to do that is ending...

You should assume that we continue to adjust our litigation
estimates based on those costs

1:40 Q: "How can customers check your numbers?" BM A: We have to
test them first and get comfortable... Remember that we're not
alone. We have regulators looking over our shoulder.

1:48 We've reduced one of our CRE portfolios down from 80 billion
to 40 billion

1:52 Q: How do you get more income over time?

BM A: We need a better economy just to turn out some of the
profits -- better (higher) interest rates. We can get out
of $1.5 bil losses per quarter

1:55: Q: "is this earnings power enough to NOT raise capital in
the future?"
BM A: We feel very comfortable. If you gave me a multi-year
recession environment, it would be a different story

1:56 Q: is it possible for the bank to manage a better return on
equity for shareholders?

BM A: Those are reasonable targets, but we need a more normal
business cycle

1:58: Q: "When will BAC pay dividends??"

BM A: The expectation for us to give return has to be
very very modest.

If we put our capital to risk to give returns, we'd have
to raise capital.

2:02: Q: "Why aren't more insiders buying?"

BM A: Everybody should rest assured that my entire
net-worth is in this company. We are all paid in stock.
We all own lots of stock on my management team

Q: "Why not consider a chapter restructuring for Countrywide?"

BM A: Can't comment.

2:04 Q: "What about going on offense?"

BM A: We are on offense, we're adding officers, adding
international business.

Clearly there's been a lot of talk about our company in the past
couple of days... just step back and look at the facts. Think
about the sheer amount of capital, amount of liquidity."

2:05: Q: "How do you grade your performance?"

BM A: "In terms of creating shareholder value, not strong. In
terms of changing internal business for the better, strong.

We'll be around centuries from now.

2:07: Q: "How are you making up for overdraft fees?"

BM A: We're going to re-price fees to monthly fees. Our customers
prefer a much clearer set of fees. The retail business made $500
mil last quarter because of that. They will continue to go up. As
rates up, we'll add more of a rate-structure ; closing branches
and expanding mobile banking

2:12: BM : SIGHS OF RELIEF then let's Bruce take over
for a question about foreclosures

Bruce: We've seen a 10% decline in the number of
seriously delinquent home loans recently.

BM: We have 15 million mortgage customers.. what's really
happening is early stage delinquencies keep moving down slowly,
quarter by quarter, customers continue to make it through

EMAIL Q&A TIME!

2:15 Q, Jim Mahoney from Oxford Financial: "Brian, can you
comment on the degree of your Euro exposure? It seems like things
are deteriorating .. how do you see that impacting you guys?"

BM A: "What we did in the past few months in 2010 when the Euro
crisis kicked at first, and markets frozem things shut down and
we looked at it and said, lets bring down our risk, we continued
to and are still now, and so we started getting rid of risk last
year, this is not a surprise..

Bruce: We're very focused on looking at exposure and the area
that's drawing the most attention Italy Greece Protugal and
Spain. In 2010 we started thinking about sov exposure. We made
sure we were comfrtable in case this was extended. Within that
region we had 16,7 bil; 1.6 bil was to sov entities. we had CDS
on 1.5 of that 1.6 bil.

Also remember: all of the non-loan books are mark-to-market every
night .

Q: Richard Jan from Lichmond Gregory: "Can you give us a $ amount
of the worst downside risk that you might have associated with
your derivative exposure? and how confident can you be in this
assessment?"

Bruce A: We establish within each country how much risk we're
willing to take in each country, We monitor every night the
amount of counter-party risk that we have. The majority of the
counter-party risks we take, there's always a requirement to post
capital.

Repeat Q: "Can you quantify a dollar amount?"

We don't put that out there. You can look at our VAR.

BBerkowitz Q: "Given all the confusion, the wide range of
speculation [as to your capital needs, etc], do you have a
message for people out there?

BM A: Where people have a reasonable guess
that's close to our guess, we do what we can to change things,
but right now people seem to think there's more and we'll
see them in court, if that's what it takes.